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January 21, 2021
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Why in news?

In its judgment, the Supreme Court (SC) upheld the validity of Section 32 A of Insolvency and Bankruptcy Code (IBC).

What did the judgment specify?

  • Section 32A of the IBC offers protection to successful bidders and the assets of a corporate debtor.
  • The court said that the successful bidders for a corporate debtor under the IBC would be immune from any investigations being conducted.
    • This applies to investigations either by any investigating agencies such as the Enforcement Directorate (ED) or other statutory bodies such as the SEBI.
  • SC also said it was important for the IBC to attract bidders who would offer reasonable and fair value for the corporate debtor.
  • This is to ensure the timely completion of corporate insolvency resolution process (CIRP).
  • Such bidders, however, must also be granted protection from any misdeeds of the past since they had nothing to do with it.
  • Such protection must also extend to the assets of a corporate debtor.
  • The court has, however, said that the immunity would be applicable only if there is an approved resolution plan, and a change in the management control of the corporate debtor.
  • The new management cannot be the disguised version of the old management. It cannot even be the related party of the corporate debtor.

How does this help?

  • The protection forms a crucial attraction for potential bidders.
  • It helps them in assessing and placing a fair bid for the company.
  • This, in turn, will help banks clean up their books of bad loans.
  • The extinguishment of the criminal liability of the corporate debtor is apparently important to the new management.
  • This will help make a clean break with the past and start on a clean slate.

Why is the SC upholding Section 32A important?

  • Since the IBC came into being in 2016, the implementation of resolution plan of several big ticket cases has been delayed.
  • This was because of various challenges mounted by its own agencies and regulators.
  • With the Supreme Court upholding the validity of Section 32 A, the cases delayed are expected to be completed soon.
  • This is also expected to give confidence to other bidders to proceed with confidence while bidding on such disputed companies and their assets.

 

Source: The Indian Express

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